Hello traders, how to use the Fibonacci extension tool in your trading so the Fibonacci extension can be used in three ways one is to refine your entry in a trending market the second is to use it as a place to exit and take your profit and the third is to enter a reversal trade so let's begin and look at those examples and let's start with entering your trade so when it comes to entries you may have your own entry criteria and you will have your own tools for entering a trade now the Fibonacci extension can be used as an extension to the corrective move so let's say for example we have a trending market here clearly we could see that you've identified the trend is down you perhaps place the trend line you've perhaps identified a zone a level the particular level that you're interested in and you're now looking for that continuation of the move further down so now you're looking for that entry at the end of this corrective move and the Fibonacci extension if you take the Fibonacci tool and you highlight these key levels the 1.618 1.27 and 2.0
so that they are visible on your chart now what you can do is when you know that this is the entry zone that you're looking to enter you can now look into the corrective move and identify the two equal moves within the corrective structure so from the low to this high is one move and if we copy this line and create an equal move we can extend it and look at an entry zone so in combination with these two equal moves pattern you can take the Fibonacci and place it on the first move at the low and take it to the top of the first move and then that will draw the extension for the entry-level so the entry-level here, in this case, would be 127 that would be the first point of the entry which combines with the trendline and combines with the second equal move now we could also have an entry on the 1618 and we can also have an entry on the 2.0 level however because it matches with all our confluences all our other indications we'll be looking at this 127.
so this entry method with Fibonacci extension is to be used as a combination as a confluence with your other tools so in this case if we just move forward we can see that the trade has now hit though 1.27 the market has reached there we are now placing our cell with the stop loss and we look for the continuation down into the continuation of the trend which is what we see here so we want to use the extension as an extension to the first part of the corrective move which will then extend into the entry zone where we look to take our entry and this is for a trending market and that is how to use the Fibonacci extension for your entry
now let's go on to the second use of the Fibonacci extension tool and that's as a place to exit and take your profit once you are in the trade so let's just continue with the example we started with we have now entered the trade and we are now looking to take profit uh were to secure our the profit we have our stop-loss we have our entry now what we do is we take the Fibonacci tool and this being the impulse move we look at the impulse move we draw the Fibonacci on the extremes in this case the reverse of what we did before so here we have the low to the high and we see the Fibonacci extension levels the first is 127 so this will be the point of taking profit and the second one will be here and the third one would be at the 2.0 level and 2.0 level simply represents two equal moves of the impulse move so you may want to either has a fixed take profit at the 127 or when the market reaches this area to take some profit off the table close part of your trade and let the rest of it runs and let it run to either 168 or 2.0 at the same time if you'd like some confluence with your trade to increase the probability you may want to combine those levels with the levels on the chart so in this case, we have a clear level here which coincides with the one six one eight so the 1.27 would be the safe area to take profit and if you let the trade run longer we have these two other levels and that is the extension level to take your profit
now let's look at the third way to use the Fibonacci extension tool which is to enter a reversal trade or otherwise known as a countertrend trade let's go back to the chart and look at an example here we're back on the same chart we still have this the downtrend that we identified previously a little bit later on let's say that we have entered a short position and we traded the market down so that was successful now we can look for a place where the market will reverse before continuing on its way so we can capture the reversal trade so after we've taken this short trade we can look for an area for the market to reverse however we don't know where that's going to be if it's going to be so reverse here There could be anyway so how can we identify a point of reversal to capture this move what we can do is we can draw the Fibonacci extension of the last impulse a move which is the obvious high here and the obvious low here so again
we'll take the tool we'll draw that and we look at the levels so again we have the v127 we have the 1618 and we have 2.0 so just as in the first case where you use the Fibonacci extension as an entry method com combined with your other tools the same way you will combine it in this case so you may have various indicators and which will tell you where that reversal is coming you may have the stochastic you may have the macd you may have other indicators that will show you that in this case, we can also include a level where we can see there's a level where there's an obvious point here which combines with the 127.
so we can look for the market to reverse somewhere around this area here so let's say that that was the area that you identified that was the area where all the indicators and the level and everything in combination happened at this point then you would look to enter so once the market reaches that point which we can see it has here and bounced off we can look to enter a buy position as a counter-trend counter trade and which will take you to the next, take the profit zone and this will be a reversal of the major trend which is in this case, going down so here we can see that the market was rejecting this level bounced off this level and if we continue we can see that although
i hesitated it did eventually hit our take profit so this can be used as a reversal trade and the Fibonacci tool will be in addition to your other tools which will give you an extra improve the probability of an extra point of confluence to enter the trade so just to recap the Fibonacci tool can be used to refine your entry to improve the probability of your entry in a trending market can be used as a place to take your profit and it can also be used as a place as an extra added confluence to improve the probability of your reversal trades or otherwise known as counter-trend trade thank you very much and good luck